Take On Payments, a blog sponsored by the Retail Payments Risk Forum of the Federal Reserve Bank of Atlanta, is intended to foster dialogue on emerging risks in retail payment systems and enhance collaborative efforts to improve risk detection and mitigation. We encourage your active participation in Take on Payments and look forward to collaborating with you.
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November 16, 2015
Is It Bigger Than a Bread Box?
The answer is yes and no. A payment card in physical form clearly is not bigger than a bread box, but it certainly is a symbol of something bigger. The card is an access device to an account. It could be a birthday gift to my favorite Italian restaurant, a debit card issued by my bank, a general purpose reloadable prepaid card purchased at my local pharmacy, or a card accessing a credit line, and the list goes on. You can't just say, “I used a plastic card to pay for my Italian dinner” and have someone know exactly which card type was used.
Let's play the classic 20-questions game, Take On Payments-style. I'll be thinking of a type of financial account, and you guess the type of account based on the 20 features below. Good luck!
- Allows you to earn interest on your account balance.
- Offers a loyalty program at selected merchants.
- Has no annual or monthly fee.
- Can be used at any domestic ATM.
- Can be used to pay bills.
- Allows person-to-person money transfers.
- Offers customer service 24/7.
- Offers cash-back rewards.
- Is usable for purchases in-person (POS) or online.
- Protects against unauthorized purchases and fraud.
- Allows access to account information via online or mobile application.
- Has budgeting features.
- Connects you to more than one account and allows you to manage multiple accounts under one main account.
- Issues mobile alerts.
- Has optional plastic card; can be all-virtual management.
- Offers mobile check deposit.
- Allows stop payments on previously scheduled transactions.
- Offers the ability to cover some purchase transactions over the account balance.
- Accepts direct deposit via ACH for payroll or other deposits.
- Allows you to order checks on the account and pay bills with a check.
Which account type did you guess? If I were to tell you that what I had thought of was a prepaid account, would you be surprised? I was thinking of prepaid as bigger than a bread box. It's not a card, or payment channel; it is an account type. Payment transactions are sent to and from a prepaid account just like a checking account. The financial institution and program manager determine the account name and features, and where accounts can be opened.
However, the payments industry needs to be careful that marketing differences don't lead to the misperception that these accounts are fundamentally different from checking accounts. If we let perceptions cloud the true purpose these accounts serve—it is essentially a transaction account, just sold differently—then regulations and risk controls may not address the actual risks. It is inconsistent to regulate transaction accounts offering the same services based on how the account was opened and the type of organization servicing the account, unless the regulation is addressing the actual risk injected at those points. In order for consumer protections and compliance to be achieved consistently, risk controls and regulations should address the operational aspects of these transaction accounts, rather than the marketing name assigned to it.
By Jessica J. Trundley, AAP, payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed
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